Keeping it simple with this week’s fresh forex idea, this time a textbook channel play on USD/CAD to play the latest market themes.
Rising Channel Holds In USD/CAD
Looking at the four hour chart above, we can see USD/CAD has been in a steady trend higher since the beginning of October, likely driven by combo of factors including geopolitically fueled global risk aversion sentiment supporting the Greenback and the downtrend in oil prices putting pressure on the Canadian dollar in October.
We also saw positive data from the U.S. this month, most notable is the positive jobs and inflation reads, likely supporting speculation the Fed will continue to raise rates into 2019.
Today, USD/CAD bulls are still firmly in control with those themes seemingly still in play, and after a short-term pullback in the last week on positive global risk sentiment moves, I see an opportunity to play that rising channel on the four hour chart at a good price.
And looking forward, odds seem to be pretty good that this trend could carry on as oil prices continue to slide (putting pressure on the Loonie), and the drop in the global equity markets seem to be gaining momentum, which likely will keep traders in risk aversion mode in the short-term.
Economic data for the rest of the month from the U.S. and Canada is likely to keep this pair volatile for rest of November as we’ll get top tier events in the next two weeks, including inflation and GDP reads from Canada, while the U.S. will give traders the preliminary quarterly GDP read to potentially spark some action.
With all of that, I decided to jump in at market earlier today (1.3215) to catch the potential bottom of the rising channel. My stop is around one weekly ATR from my entry, and my target is a major psychological area of interest, as well as strong resistance at the end of 2017. Here’s what I’m doing:
Long half position USD/CAD at market (1.3215), max stop at 1.3050, initial target at 1.3500
Again, I’ll be risking only 0.50% of my account and my potential return-on-risk is about 2:1 . I will likely add to this position if upside momentum picks up, which is a possibility as the risk aversion sentiment seems to be growing daily. If 1.3500 is reached and the major themes of risk aversion remain strong, I could likely adjust my plan to reduce my risk and maximize my profit.
Of course, with other major themes driving markets and fast developments happening in geopolitical news, I will not hesitate to adjust quickly (i.e., cancel orders, close trade, reverse trade) depending on what happens and how the markets react.
Stay tuned and as always, remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t simply follow what I do.
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